The rise and fall of NFT Art
“The auction room, as everyone knows, is an excellent medium for maintaining fictitious price levels, because the public imagines that auction prices are necessarily real prices.”—Robert Hughes, 1984, The New York Review of Books
On March 11, 2021, Mike Winkelmann, a digital artist who goes by the online name Beeple, auctioned a digital artwork at Christie’s, one of the largest art auction houses in the art world. The title of the work was called “Everydays: The First 5000 Days”, which was a collage of computer illustrations.
It sold for a staggering $69 million.
Why so much money? That is a good question that is difficult to answer. Aesthetically and visually, Beeple’s work is not particularly original or interesting. New York The magazine’s art critic, Jerry Saltz, tweeted about the work, too: “I looked up Beeple; just really derivative Sci-Fi and Conan and Star Wars crapola in terms of visuals and imagination.” It is not really a declaration of confidence. Nor is it that Beeple’s work was the first piece of digital art ever created. Digital art can be dated back to the 1990s, even earlier.
One reason Beeple’s work sold so highly was because it included an NFT, or non-fungible token. NFT is an online digital format invented in 2014. An NFT is a digital certificate or digital file that is connected to a blockchain, basically an online ledger. Blockchain technology also enables cryptocurrencies such as Blockchain and Ethereum.
Part of what made the sale so remarkable is that the worlds of art and digital media have always had a frozen relationship. This was especially true when artists or gallery dealers are trying to sell digital art, which in some cases may be entirely digital. Does the artist or gallery sell digital files? Or just the code of a website? And how is it really unique?
Photo courtesy of Nataworry Photography
Still, in 2021, it seemed that many in and out of the art world were betting on NFTs, and by default crypto, which is what NFTs are based on. The technology solves these and several other problems related to digital media, by allowing cryptocurrency to digitally authenticate works purchased online. NFTs solve the “uniqueness” problem.
By coincidence or design or misunderstanding, the sale of Beeple’s digital work ushered in a brief golden age of robust buying and selling of NFTs. There was something of a gold rush to buy NFTs: In December 2021, Artnews reported that digital artist Pak sold a group of NFTs for $91.8 million, which may arguably be the highest price ever paid for a work of a living artist. In March, the New York Times reported that $44 billion had been spent on NFTs. There was even a new museum dedicated solely to NFTs that opened in April in Seattle.
Digital art seemed to have come of age with the imprinting of NFTs.
Then, in May and June 2022, cryptocurrency prices crashed. The effects of this downturn reverberated through the NFT markets, according to many news outlets. According to Reuters, NFT sales fell sharply in the third quarter of 2022, to $3.4 billion from $12.5 billion at the market’s peak in the first quarter of this year. Bloomberg reported that trading volumes for NFTs are down 97 percent from January this year, a record high. News outlets also linked the drop in NFT prices to the larger crypto crash. According to Bloomberg, “The fading NFT market is part of a broader, $2 trillion wipeout in the crypto sector.”
But it wasn’t that just bad news NFTs got.
In mid-October, Bloomberg published a massive 40,000-word story in the Business week, written by financial writer, Matt Levine, who attempted to demystify and explain cryptocurrency as well as NFTs. But it can be said that both crypto and NFTs received quite harsh criticism in Levine’s story: For example, in the middle of the article, Levine refers to a Esquire article, discussing how some in crypto are trying to rethink books as investment opportunities! Levine’s take is this? “The bad way to say this is that every web3 project is simultaneously a Ponzi.”
Levine also questions the thin connection between the code you invest in on the blockchain when you buy an NFT and the artwork itself. He writes, “but what does it mean to say that NFT is a piece of digital art? Art does not live off the blockchain… If you buy an NFT, what you own is a notation on the blockchain that says you own a pointer to a web server.” It’s like paying a museum for a Cezanne and they just give you the page from the museum catalog…or better yet, they just sent you the museum’s wall sticker!
On Bloomberg TV, Bloomberg Businessweek finance editor Pat Regnier, who edited Levine’s story, said there are other aspects of NFTs to be skeptical about, “I think we’ve all observed that there was enough bravado in it [fine-art] the market – to create inflated valuations –[which may give] people pause a lot when they enter that room.” Maybe he was referring to Pak or Beeple.
Legally, there are other problematic issues. “The intellectual property rights to the image of a monkey,” Levine writes, “are absolutely none of the blockchain’s business. It is not unusual for the person or company selling the NFT series to 1) own the IP rights to the images of the monkeys and 2) promise to transfer those rights, or any of them, to individual holders of the NFTs. But if that happens, it happens outside the blockchain; those promises are or are not enforceable through the normal legal system.” In fact, buying an NFT may not solve the problems people expect it to.
For Renier, a rather frightening financial takeaway from Matt Levine’s story is that many in the crypto world have created digital processes and apps that have repeated the mistakes made in the 2008 financial crash: “People who build these structures are building things that are very similar to the things in traditional finance that breaks down, and sometimes breaks down catastrophically.”
So NFT investors might want to keep an eye out: It might not just be a very tough crypto winter they have to suffer through, but a crypto Armageddon.
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